I have been consulting Texas Sales and Use Tax for over twenty years and unfortunately, it doesn’t surprise me how many times clients have told me that they don’t know what use tax is or that they can be held responsible for tax due on their purchases.
Per Texas Tax Rule 3.346, if you purchase taxable goods and services from a seller who does not charge Texas sales tax, you owe State and Local Use Tax. Sellers may not charge you appropriate sales tax on their sales for a number of reasons – they may not be permitted for sales taxes in Texas, they may not be located in Texas, or they may not understand the tax rules. Regardless of the reason, if the product or service you purchase is taxable to you (i.e., you don’t hold an exemption for it) and a vendor does not charge you Texas sales tax, you must remit that tax directly to the Texas Comptroller.
For example, if you order a printer and supplies from a company in another state and they do not charge you Texas sales tax, then you owe Texas use tax on the sales price of the items. Products and services provided from a company in another country and used in Texas are also subject to Texas use tax.
Whether you use Webfile or file your return by mail, both methods have a field or space called “Taxable Purchases” where you enter the total purchase amount of the non-taxed product or service.
For example, if you purchased the following taxable items and did not pay tax to the vendor:
You will enter $944 in the Taxable Purchases field / space and the form adds this to your reported taxable sales to determine a total amount subject to tax. The form calculates the total tax per your location tax rate.
During a Limited, Sales, Excise and Use Tax audit by the Texas Comptroller of Public Accounts, the auditor will not only review your sales for correct taxation but will also review your asset and expense purchases to ensure that you paid tax correctly. Any purchases deemed incorrectly taxed will be scheduled as errors on your audit and you will owe tax plus interest and penalty. For some companies, this amount may be small, but for other companies it can be quite devastating and expensive.
If you are concerned about your use tax compliance, please reach out to us at 469.352.9616 or firstname.lastname@example.org to discuss how we may help you develop an appropriate process for tracking, supporting, and reporting use tax appropriately. Note that simply remitting use tax may not be sufficient in an audit if you do not have the appropriate support.